As Jobless Claims Surge by 3 Million, Unemployment May Soon Be Highest Since Financial Crisis

U.S. jobless claims hit record levels on Thursday as economists warned that the unemployment rate could reach its highest levels since the financial crisis amid the COVID-19 pandemic.

New data released by the Department of Labor this morning revealed that 3.3 million initial claims for unemployment benefits were made in the week ending March 21.

The Labor Department said the spike in jobless claims was "the highest level of seasonally adjusted initial claims" in history, up from a previous high of 695,000 in 1982.

It added that "nearly every state providing comments cited the COVID-19 virus impacts," and said the services industry had been particularly damaged by the outbreak.

"Additional industries heavily cited for the increases included the health care and social assistance, arts, entertainment and recreation, transportation and warehousing, and manufacturing industries," the department wrote.

The record shattering jobless claims data came a week after the Labor Department recorded 281,000 applications for unemployment insurance in the week ending March 14.

Shortly after it published its data, the agency asked state officials not to reveal the exact number of claims in their jurisdictions until it published today's report.

But some state authorities ignored the labor department missive, with Wisconsin revealing that it was hit by more than 100,000 claims in just nine days after Michigan published data showing jobless claims in the state surged by 2,100 percent.

Speaking to Newsweek about the spike in jobless claims last week, Ioana Marinescu, an assistant professor of economics at the University of Pennsylvania said: "Not all of these new unemployment claims are simple layoffs. Some are temporary layoffs and furloughs."

Job Seekers Outside Career Fair Amid Recession
Job seekers wait in line to enter a California job fair on February 10, 2009 amid the Great Recession. Justin Sullivan/Getty Images

But she later warned that jobless claims were going to be "very high" as a result of the coronavirus pandemic, and predicted that unemployment levels would be "much higher" than they were during the Great Recession of 2007 to 2009.

The 3.3 million initial unemployment claims filed last week already dwarf anything seen during the last crash, when initial jobless claims peaked at 665,000 in the week ending March 28, 2009.

They also far exceed the previous record of 695,000 set at the start of October, 1982.

"Eventually we will return to full employment, but some jobs lost will never return," Erica Groshen of Cornell University's School of Industrial and Labor Relations said. "Temporary layoffs typically do return."

Scott J. Brown, chief economist at Raymond James & Associates, noted that there were "anecdotal reports" of hourly employees having their hours docked to zero rather than being laid off outright.

"While that effect should be small in terms of the job numbers, it prevents them from qualifying for unemployment benefits in most cases," he said.

The economist added: "The unemployment rate should rise quickly over the next few months, but the March increase will understate the problem (maybe 3.8-4.2 percent in March). I'd expect to see an unemployment rate of about 7-8 percent in the next few months (we got near 10 percent during the previous downturn)."

"We look for nonfarm payrolls to decline by roughly 8-million over the next two quarters, sparking the unemployment rate to shoot up to nearly 9 percent by Q3," Wells Fargo senior economist Sam Bullard also said.

Joel Naroff of Naroff Economics, LLC predicted that there could be "something in the range of 5-8 million jobs lost and the unemployment rate rising to anywhere from 8.5 percent to 12.0 percent" if COVID-19 related shutdowns last until June.

"April could show a decline in payrolls above 1 million and a rise in the unemployment rate by one percentage point," he added. "Similar numbers could be sustained for three months."

While the three most followed U.S. indices plunged as the COVID-19 pandemic continued its spread last week, the former Director of the Federal Reserve's Division of Research and Statistics David Wilcox said monthly job reports were "likely to be the worst ever on record."

He also told Newsweek that May's job report covering April's pay period would have particularly important data on layoffs resulting from the coronavirus crash.

The U.S. unemployment rate peaked at 24.9 percent in 1933 amid the Great Depression, and hit a post-Depression record of 10.8 percent in December 1982.

During the Financial Crash of 2007 to 2009, the U.S. unemployment rate hit a 10 percent peak in October of 2009 and has steadily declined since.

According to the latest Bureau of Labor Statistics data, the unemployment rate was steady at 3.5 percent as of the end of February. The total civilian labor force stood at roughly 164,546,000 people.

In order to surpass the Great Depression's peak rate of unemployment, an unprecedented 41,136,500 Americans would have to be put out of work by the COVID-19 pandemic.

Correction 03/26/20 09:48 ET: The headline of this article has been updated to reflect that jobless claim figures surged by 3 million, not 3.3. million.

As Jobless Claims Surge by 3 Million, Unemployment May Soon Be Highest Since Financial Crisis | U.S.